It has been a bumpy ride for investors over the past several years, and 2011 was no different. Yet, despite everything from corporate financial scandals to international crises, stocks continue to surprise investors.
We are seeing solid growth from key players in the automotive and telecommunication industries. In my analysis of Ford, General Electric, Citigroup, Cisco Systems and Verizon, I find these key market players are in a unique position to weather any type of economic climate. In the following article I will discuss how these five stocks are positioned to see dividend growth in the coming quarters.
Ford (F) is Alan Mullaly's debt management success. Ford suspended its 5 cent dividend payments in 2006. As a result its five-year payout ratio is 0%. On a positive note, it was the only one of the major auto makers that did not declare bankruptcy during the recession. Ford continues to earn billions of dollars and was recently upgraded by all three credit agencies. Cash flow is strong at the end of 2011 at around $20 billion. However, its cash flow margin is 0% with a gross profit margin of 17.3%, positioning it for slow but steady forward growth. It has a higher return on equity at 14% compared to competitors at 13%.
Shares are trading at about $12 at writing time. This has been fluctuating up and down by a few dollars every day this year. Dividend yield is at 1.6%. Ford recently reinstated its quarterly dividend at the end of January. While the company expects to boost dividends in 2012, it is unlikely a major boost will actually occur although a small increase may be realized by the end of the year. In my opinion, solid fundamentals of consistent growth, coupled with a credit upgrade put Ford in a good position to increase its dividend by one cent per share later this year.
General Electric (GE) is a conglomerate that hobbled itself due to an overgrown financial arm, GE Capital. It also has holdings in energy and materials industries that will be its true growth drivers going forward. Major competitors include Siemens (SI) and Koninklijke Philips Electronics (PHG). General Electric has a solid history of paying dividends. Its payout ratio is 50%. Its dividend yield is 3.57%. Its cash flow margin is 8% while its gross profit margin is just about 25%, down dramatically from the nearly 57% in March 2011.
Shares are trading at around $19 a share near the 52 week high of $21.65. This is indicative of its 0% revenue growth. It is comparable to Koninklijke Philips Electronics, both of which are well below Siemens which is currently trading at $96 per share. It also suggests that while General Electric will continue to pay a dividend, payouts will not see a boost during 2012. This is supported by little growth in the dividend which is expected to be $0.17 at the end of January 2012. I believe GE has the capacity to increase its dividend by one to two cents per share, due to its solid history of paying dividends and the company's ability to diversify and focus on developments in different industries.
Citigroup (C) continues to struggle from the credit crisis. It seems to have fallen behind its competitors during the current recovery period. During 2011, its revenues dropped by nearly 10%. This is a combined rate that includes Citicorp and Citi Holdings. By mid-January of 2012, the stock continued to decline. Its dividend yield is 0.13%. Its revenue growth is at -4% compared to competitor JPMorgan Chase (JPM) that has a -1% revenue growth suggesting Citigroup is not faring as well. Cash flow is strong in earnings, operating and investing activities for a combined $62 billion. But it struggles with financing activities, losing nearly $54 billion. This will likely be a continuing issue in 2012.
Citigroup is presently trading at around $32 per share at the time of this writing. Investors should hold off purchasing this stock if they do not already own it. For current stock owners, do not expect a significant boost in dividends during 2012. Dividend payouts will remain steady at $0.01 as it has for the past several quarters. Until it gets a handle on its own investments and spending, earnings will continue at about $4 per share. The payout ratio will remain at 0%. Though Citigroup needs to get a better handle on its finances before returning any significant amount of cash to its shareholders, I believe the stock will produce a dividend increase of one or two cents per share, primarily due to the company's strong cash flow and capacity to cover debt.
Cisco Systems (CSCO) is still leaning heavily on legacy contracts and its sales team and, until now, has had little to worry about from competitors like Hewlett Packard (HPQ) in terms of market share. While several of its service areas lag behind competitors, its overall position remains solid. Although it has a 10% revenue growth compared to competitor revenue growth of 20%, Cisco Systems is a reliable earner with a profit margin of 14.49%. It has an operating cash flow of just under $11 billion. Its dividend yield is 1.2%. The payout ratio for the company is 10%.
Cisco Systems shares are trading around a price of $20, which has remained steady over the past year. The first cash dividends were paid by the company in March 2011. The payout was $0.06 and has remained at that rate each payout since that time. Because it is a new dividend payer, Cisco Systems is unlikely to boost dividends significantly in 2012. I anticipate the stock will continue with the $0.06 dividend with the possibility of a two to three cent increase per share in the coming quarters, due to solid fundamentals of consistent earnings and its well established position in the information technology industry.
Verizon (VZ) has done a good job of maintaining its number two spot. Its entry into the iPhone market as the second wireless provider partnered with Apple (AAPL) has moved Verizon into position as a major player in the communications industry. Verizon's profit margin of only 6.49% reflects this activity. Operating cash flow is near $30 billion. Its dividend yield is 5.4%. Most notable is its payout ratio which is 231%. Actual dividends have consistently grown without fail since April 2006 when the payout was $0.405 per share.
Currently, shares are trading for $38. The present value of the dividend to be paid February 2012 is $0.50. This is in line with its dividend history suggesting that if a boost occurs, it will not happen until the end of the year and will not exceed $0.02. I predict we will see a dividend increase of one to two cents per share in the coming quarters, based on the company's consistent dividend growth and its ability to offer high demand product lines such as the iPhone combined with its highly acclaimed network coverage.